Currency changes have favored European buyers in London’s high-end home market for the past five years, but dollar buyers may see new opportunities

Wealthy Europeans searching for financial safe havens have benefited more than Americans by funneling their money into prime London property.

The average price of a home in prime central London, which includes Mayfair, Knightsbridge, Chelsea and Notting Hill, has increased by about 56% over the past five years, according to data compiled on behalf of Mansion Global by Hometrack, the UK-based residential analyst.

However, due to currency changes, buyers backed by euros have seen gains of 75%, while those buying with the dollar have seen only a 44% rise over the same period.

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Euro-backed investors who bought a year ago have also reaped the biggest rewards. Over the past year alone, prices have risen by 5%, but those who bought with the euro have seen a 10% price increase for their properties. In contrast, dollar-backed buyers have suffered a 3% fall.

Between 2010 to 2012, while Greece teetered on the brink of debt default, concerns over the eurozone spurred on greater investment in the London luxury home market from European buyers.

Euro-backed owners have out-performed the local market in the last two years thanks to the strengthening of sterling relative to the euro. This has delivered material paper gains to those who bought central London property as a hedge in 2010-2011 during the eurozone crisis.

Hometrack

But the recent weakness of the euro means new euro-backed buyers will now find it much more expensive to buy in London.

Dollar-backed owners of upmarket central London property, meanwhile, also registered gains ahead of the market until mid-2014 on a stronger pound relative to the dollar.

Brad Pitt and Angelina Jolie were among the Americans who bought a home in London during this period. They reportedly paid $10 million for a mansion in Richmond by the River Thames in southwest London in 2012.

However, since then the pound has weakened against the dollar. This has boosted the buying power of dollar-based buyers but the scale of demand this may generate is more limited as, in relative terms, residential values are still almost twice the level they were in 2009.

“While currency changes are important, the decision to buy or sell property comes down to a range of factors. A number of recent tax changes—the stamp duty land tax and capital gains tax for overseas buyers—have impacted demand,” Richard Donnell, insight director of Hometrack, said. “These tax changes together with the sheer scale of growth in underlying values has made central London appear to offer less value for money than 5-7 years ago.”